A price ceiling on rental spaces typically results in which of the following effects on the supply of rental spaces?

• A. A shortage
• B. No change
• C. An increase in supply
• D. A surplus

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a price ceiling is. A price ceiling is a legally imposed maximum price that can be charged for a good or service, set below the market equilibrium price to make the good more affordable.
2. Step 2: Recall the law of supply, which states that as the price of a good decreases, the quantity supplied generally decreases because suppliers are less willing or able to provide the good at lower prices.
3. Step 3: Analyze the effect of the price ceiling on rental spaces. Since the price ceiling is below the equilibrium rent, landlords receive less rent than they would at equilibrium, reducing their incentive to supply rental spaces.
4. Step 4: Consider the demand side. At the lower price set by the ceiling, more renters want to rent spaces, increasing the quantity demanded.
5. Step 5: Combine supply and demand effects. The quantity demanded exceeds the quantity supplied at the price ceiling, leading to a shortage of rental spaces.